Learning Goals
                           2
   
    What are investment companies?
   
    What are the different kinds of investment 
    companies?
   
    What are the different kinds of mutual funds?
   
    How are they sold?
   
    What are exchange-traded funds?
      Functions of Investment Companies
                               3
   
     Record keeping and administration
   
     Diversification and divisibility
   
     Professional management
      Active portfolio management
      Tax minimization
   
     Lower transaction costs
          Types of Investment Companies
                                      4
    
      Unit Investment Trusts
       Closed-end Mutual Funds where there is no trading in the 
       underlying assets
    
      Managed Investment Companies
      Open-end funds (mutual funds)
      Closed-end funds
    
      Commingled funds
       These are similar to mutual funds, but they are not open to all 
       investors and hence have less regulation and disclosure
    
      REITs
       Corporate entities investing in real estate that pay out 90% of their 
       income; in return they don’t have to pay corporate taxes
    
      Hedge funds
       Mutual funds that are structured as private partnerships and have 
       minimal SEC regulation
                 Types of Mutual Funds
                                   5
    
     Money Market Funds
    
     Equity Funds
    
     Sector Funds
      Concentrate on a particular sector
    
     Bond Funds
    
     International Funds
      Invest in securities of firms located outside the US
    
     Balanced Funds
      Hold stocks and bonds; meant to be an individual’s entire 
       portfolio
      Life cycle funds take the investor’s age into account
    
     Asset Allocation Funds and Flexible Funds
    
     Index Funds
                 How Funds are Sold 
                                 6
   
     Directly by the Fund Underwriter/Distributor, 
     who
      Creates prospectus for the fund
      Develops marketing campaigns (tv, internet, magazine)
      Sells the shares directly to the public
      Provides a wholesale market to reach a larger number of 
       investors
   
     Indirectly through brokers or financial advisers
      Funds pay brokers for preferential treatment when 
       making investment recommendations – revenue sharing. 
        Note conflict of interest!
   
     Fund Supermarkets